Finance Expert Tells Us How To Prepare For Retirement, No Matter Your Age

Regardless of your age, what you do for a living, or where you are in your career at this moment in time, it's important to plan for your eventual retirement from the workforce. Since you can't predict what might happen in a year — never mind potentially decades from now — you need to figure out how to budget and save to the best of your ability while you can. If that prospect sounds daunting, there are people whose jobs are to help you in working out everything based on your personal circumstances.

While we can't speak to everyone's individual situation, we at Glam spoke with Tom Koesternen, a chartered financial analyst (CFA) who consults for The Guaranteed Loans, to figure out what you need to know about planning for retirement today and why situations outside your control, including the COVID-19 pandemic, have made it even more important that you stay prepared and make your financial decisions wisely.

Although this first tip might sound ominous, Tom Koesternen stressed to us that it's important to expect the unexpected and plan for early retirement, even if you don't think that it will happen to you. On this point, Koesternen mentioned that those over age 50 are the most likely to be affected by the prospect of early retirement in the short term, making this step even more necessary if you fall into that age bracket.

"The general retirement age has changed, especially because of COVID-19, layoffs, and alternate WFH options. So, every individual should plan for early retirement," he told us. "While preparing financially for retirement is essential, one should be prepared mentally, as well. Therefore, contingency plans should be ready about what to do in case you take the retirement call." To do this, people should prepare young because you never know what will happen.

In relation to preparing for retirement, Tom Koesternen also discussed the importance of having a health savings account, also known as an HSA, with savings in it. As noted by Koesternen as well as by HealthCare.gov, having an HSA isn't a substitute for having health insurance, but it can be incredibly helpful when you are faced with medical expenses.

Explaining briefly how an HSA works, Koesternen told us, "Besides catering to any emergency, HSA contributions provide tax incentives, with the withdrawals classified as tax-free if they qualify for medical-related expenses. Usually, the HSA accounts are tied up with health insurance plans. So, we shall discuss that option too." If you are less familiar with HSAs, it's important to familiarize yourself with them as you plan for retirement. For example, there are some restrictions on what you can and cannot do with an HSA, so you'll need to factor these into your plans.

As mentioned by Tom Koesternen, the importance of having savings in a health savings account (HSA) is tied to the importance of your health insurance itself. Here, Koesternen mentions that you need to plan for retirement by ensuring that you factor in any health insurance plans you may need since Medicare eligibility only begins at age 65.

Here, Koesternen elaborated, "Usually, your employer must have insured you and your family in a health insurance plan. Continue contributing to the plan and keep yourself insured. Since you will be investing from your savings, the health insurance plans for retired people are usually linked to their HSA. But health coverage is of paramount importance in any retirement plan."

Navigating the issue of health insurance can be complicated for anyone, and it's important to be aware of your options, particularly as they relate to any life changes or legislative changes. Per HealthCare.gov, your circumstances related to healthcare coverage in retirement may differ based on your job prior to retirement, including self-employment.

Tom Koesternen's next tip for us might be more difficult depending on your personal circumstances, but it is certainly important: In planning for retirement, you'll want to minimize the debt you owe since this will ultimately affect the money that you are able to save up. On top of that, Koesternen added, "Financial prudence says that one should be free of debt before one retires because the income options after retirement might be insufficient to clear the debts. Therefore, people planning to retire should ensure they are debt free by the time they walk out of their offices."

This piece of advice could sound easier said than done, and Koesternen also acknowledged this, saying, "So we advise you to check your debts and prioritize repaying them while you are still earning. Therefore if the debts are substantial, you might have to put in the extra mile and work overtime to be debt free on retirement." This may sound like common sense, but putting in the work now can really save you later.

Lastly, even if you are years away from retiring, Tom Koesternen tells us that it is important to spend wisely. At some level, your spending now will affect how much money you will have saved in the future, and it is important to develop good habits around spending money — or not spending it, as the case may be — before it becomes of even greater importance for your future.

In this regard, Koesternen explained, "The most significant change you experience after retirement is your spending habits. Since your income sources would have reduced after retirement, you must change your spending habits well in advance," adding, "Therefore, if you plan an early retirement, start practicing thriftiness and alter your spending habits. It can prove handy when you actually retire because the transition would not be painful. So while saving and insurance are important, your spending should also be on the scanner."

This tip also goes back to Koesternen's first point about planning for early retirement, meaning that budgeting should probably be on your mind regardless of how close you think you are to your retirement at the present time.